15 May 1997 External T.I. 9705555 - EMPLOYEE PAY ALL PLANS

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Taxability of group disability plan

Position:

If legal obligation for employees to pay 100% of premiums, it is an "employee-pay-all plan" and the amount received are not taxable

Reasons:

Paragraph 16 of IT 428

XXXXXXXXXX 970555

Attention: XXXXXXXXXX

May 15, 1997

Dear Sirs:

Re: Tax Treatment of Group Disability Plans

This is in reply to your letter of February 26, 1997, wherein you requested our comments with respect to an employer sponsored group disability plan whereunder an employer establishes an "employee-pay all" disability plan for all its staff and pays the premiums for the plan and includes the premiums in the computation of the employee's taxable income for the year as a benefit reported on a T4 supplementary.

Whether or not a particular disability plan can be regarded as being an "employee pay-all plan" as described in paragraphs 16 through 20 of Interpretation Bulletin 428 is a determination of fact which can only be made after a review of all the pertinent documentation. While it is not possible to provide any definitive opinions, we will provide the following general comments.

An employee-pay-all plan is a plan the entire premium cost of which is paid by one or more employees. Benefits out of such a plan are generally not taxable because an employee-pay-all plan is not a plan within the meaning of paragraph 6(1)(f) of the Income Tax Act (the "Act"). The main criteria in determining whether a particular plan is an "employee-pay-all plan" is the existence of a requirement that places upon the employees the legal obligation to pay 100% of the required premiums. The manner in which the premiums are deducted, remitted to the carrier and accounted for by the employer does not, in and by itself, determine the status. As noted in paragraph 17 of IT 428, an employer cannot change the tax status of a plan by adding at year end to employees' income the employer contributions to a wage loss replacement plan that would normally be considered to be non-taxable benefits. On the other hand, where an employee-pay all plan does, in fact, exist and it provides for the employer to pay the employee's premiums to the plan and to account for them in the manner of wages or salary, the result is as though the premiums had been withheld from the employee's wages of salary. That is, the plan maintains its status as an employee-pay-all plan if the plan provided for such an arrangement at the time the payment was made.

Where the plan provides for employer contributions, the plan would generally be considered a "wage loss replacement plan" and periodic amounts received by the employees would be included in income under paragraph 6(1)(f) of the Act. Where the employer has made the contribution to the plan, paragraph 6(1)(a) of the Act provides that this amount is not to be included in the income of the employees if the plan is a "group sickness of accident insurance plan".

We trust our comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch